Fresh on my return from the Florida Realtors’ 100th anniversary celebration and annual meeting, I see a blog post from Grant Cardone making a provocative point.
I love it!
Why go out there and do the same old stuff the same old way that everybody else does it. Not why I got out of bed this morning! Well I can tell you, if anybody at Florida Realtors (besides me) let alone at the National Association of Realtors saw what Grant wrote, there would be many fits of despair I can tell you.
His provocative point it that unless you are super rich, that buying a single family house is stupid. He thinks people need to be more flexible, invest in themselves, invest in things that produce money for them. Rental and commercial real estate I assume are ok in his view. Not residential. Invest in yourself, in your skills. Jim Rohn once said “wages make you a living but profits make you a fortune.” Something along those lines. I don’t want to put words in Grant’s mouth, I’m not super familiar with his work.
I think it was William James who said something about contempt prior to investigation, so Grant’s comment is not to be dismissed out of hand. The work of science is to substitute facts for appearances and demonstrations for impressions. (A foray back to actuary-land.)
As with many things there is the easy point and the larger point here. I could write a book about this. I probably should. It really gets to the heart of my conceptualization of New Realty Concepts and the role of the Realtor. So it sort of is consistent with a lot of my prior writing, my SFGN columns, and my videos.
Over the next several weeks I’ll be fleshing this out. It could make for a good book or white paper at least.
The initial story I will tell today consists of three charts. First I will show volatility of returns on Fort Lauderdale real estate held for five year periods ending in 2006; then what happened following 2006; then look at 15-year returns. I’ll conclude with some observations that will tee up later discussions.
Typically, residential real estate can be purchased with a minimal down payment. First I calculated compound annual returns assuming a person bought a property in greater Fort Lauderdale, made a 5% down payment, held it 5 years and then sold. I assumed there were closing costs on the front end and brokerage expenses on the back end.
Returns were, well, volatile and then starting in the early 2000s skyrocketed. Yes you really could have bought a house in 2001 here for 5% down, sold in 2006, and had a rate of return — an Annual return — of 80% . Compounded.
Then of course “something happened”…
The bust.
So yes, returns did fluctuate.
But look at it a different way. Consider the returns over a longer time frame. Still assume you made a 5% down payment but lengthen tour holding period to 15 years from 5.
Of course, no one can predict the future from the past, not even Grant Cardone and certainly not me. But with a longer time horizon the returns do seem to stabilize and at a very healthy level.
The closing observation would be that it’s very hard to say whether any one investment would be always good at any time. I don’t think there is always a time when an investment is bad either. It kind of cuts to my view of how I do my work. I’m trying to make the world a better place, to hep people make good decisions as best I can. The research points toward better values and lesser values, to higher risks and lower risks. There are few absolutes.
Grant has a point, there are definitely times when real estate should be viewed cautiously. Lots of people lost lots of money here between 2007 and 2012. There are still people who owe more than there properties can be sold for. When you hear someone say “sure thing”, run away.
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